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A new season of investment in India: FDI in multi brand retail, aviation, power & broadcasting sectors

While this edition was in print, the Department of Industrial Policy & Promotion vide Press Notes No.5 (2012 Series), No.6 (2012 Series), No.7 (2012 Series) & No.8 (2012 Series) has issued the guidelines and permitted the FDI in Multi Brand Retail Trading Sector, Aviation Sector, Broadcasting and Power Sector respectively. This major development need to be a part of our IBA edition as it will completely change the face of Indian economy and will allow major foreign investment in these sectors. The investor sees India as one of the major market to invest due to the size of the market hence this change in FDI policy would bring an influential change in Indian Foreign reserves.

In this regards Department of Industrial Policy & Promotion vide Press Note No.5 (2012 Series) have reviewed the extant policy on FDI and decided to permit FDI, up to 51%, under the Government route, in Multi-Brand Retail Trading. The following states which are in agreement to the said Policy are Andhra Pradesh, Assam, Delhi, Haryana, Jammu & Kashmir, Maharashtra, Manipur, Rajasthan, Uttarakhand, Daman & Diu and Dadra and Nagar Haveli (Union Territories). However, it has been further clarified that Retail trading, in any form, by means of e-commerce, would not be permissible, for companies with FDI, engaged in the activity of multibrand retail trading. The present FDI policy in Multi Brand Trading is subject to specified conditions:

Foreign investor has to bring minimum amount of US $ 100 million. Foreign investor has to further invest 50% of total FDI brought in into ‘backend infrastructure’ within three years of the first tranche of FDI. Expenditure on land cost and rentals, if any, will not be counted for purposes of back end infrastructure.

Foreign investor has to procure at least 30% of the value of manufactured/processed products purchased sourced from Indian ‘small industries’ which have a total investment in plant & machinery not exceeding US $ .1.00 million. This procurement requirement would have to be met, in the first instance, as an average of five years’ total value of the manufactured/ processed products purchased, beginning 1st April of the year during which the first tranche of FDI is received. Thereafter, it would have to be met on an annual basis. Government will have the first right to procurement of agricultural products.

Foreign investor has to give self-certification to ensure compliance of the above conditions which could be crosschecked, as and when required. Accordingly, Foreign investor shall maintain accounts, duly certified by statutory auditors.

Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per 2011 Census and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities; retail locations will be restricted to conforming areas as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking; In States/ Union Territories not having cities with population of more than 10 lakh as per 2011 Census, retail sales outlets may be set up in the cities of their choice, preferably the largest city and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities. The locations of such outlets will be restricted to conforming areas, as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking.

The establishment of the retail sales outlets will be in compliance of applicable State/ Union Territory laws/ regulations, such as the Shops and Establishments Act etc.

FDI in Civil Aviation Sector:

Vide Press Note No. 6 (2012 Series) has reviewed the extant policy on FDI in relation to the Civil Aviation Sector and decided to permit the foreign airlines also to invest in the capital of Indian Companies, operating scheduled and non scheduled air transport services up to 49% of their paid-up capital. However it has been clarified that the revised FDI policy on Civil Aviation Sector is not applicable to M/S Air India Limited. Also, the present FDI policy in Civil Aviation Sector is subject to the following specified conditions:

FDI by the foreign investor is to be made under the Government approval route.

The 49 percent limit will subsume FDI and FII investment.

The investment made in the Civil Aviation Sector need to comply with the regulations of SEBI (Securities and Exchange Board of India), such as the Issue of Capital and Disclosure Requirements (ICDR) Regulations/Substantial Acquisition of Shares and Takeovers (SAST) Regulations, as well as other applicable rules and regulations

A schedule Operators Permit can be granted only to a company:

Which is registered and has its principal place of business within India.

Whose Chairman and at least two-thirds of the Directors are citizens of India and

The substantial ownership and effective control of which is vested with Indian nationals.

All the foreign nationals who are likely to be associated with Indian Schedules and non Scheduled air transport services for the purpose of investment in civil aviation sector shall be cleared from the security point before deployment.

All technical equipment that might be imported into India for the purpose of investment in civil aviation sector shall also require the clearance from the relevant authority in the Ministry of Civil Aviation.

FDI in Broadcasting Sector

Vide Press Note No. 7 (2012 Series) has reviewed the extant policy on Foreign Investment in Companies operating in the Broadcasting Sector in a below mentioned manner subject to the terms and conditions as may be specified by the Ministry of Information and Broadcasting from time to time.:

Teleports (setting up up-linking HUBs/ Teleports), Direct to Home (DTH), Cable Networks (MSOs operating at National or State or District level and undertaking upgradation of networks towards digitalization and addressability:

For the above mentioned section, foreign investment limit has been increased from 49 percent to 74 percent subject to the following conditions

Foreign Investment up to 49 percent is being permitted under automatic route and

Foreign Investment beyond 49 percent to 74 percent is being permitted under the Government Route.

Mobile TV:

For Mobile TV permitting Foreign Investment up to 74 percent is subject to the following conditions:

Foreign Investment up to 49 percent is being permitted under automatic route and

Foreign Investment beyond 49 percent to 74 percent is being permitted under the Government Route.

It has been further clarified that the Foreign Investment in the Companies engaged in the above mentioned activities of I and B sector, shall include in addition to FDI, investment by Foreign Institutional Investors (FIIs), Non-Resident Indians (NRIs), Foreign Currency Convertible Bonds (FCCBs), American Depository Receipts (ADRs), Global Depository Receipts (GDRs) and convertible preference shares held by foreign entities.

FDI in Power Exchanges

Vide Press Note No. 8 (2012 Series) has reviewed the extant policy on FDI and has decided to permit FDI up to 49 percent in Power Exchanges, registered under the Central Electricity Regulatory Commission (Power Market) Regulations 2010. And, the present FDI policy on Power Exchanges is subject to the following specified conditions:

FDI in Power Exchange would be subject to an FDI limit of 26 percent and an FII limit of 23 percent of the paid-up capital.

Further FII investment would be permitted under the Automatic Route whereas FDI would e permitted under the Government Route.

Non-resident investor/entity including persons acting in concert will not hold more than 5 percent of the equity in Power Exchange companies and

The FDI in Power Exchanges would be made in compliance with the SEBI Regulations, other applicable laws/regulations, security and other conditionalities.